Mutual funds’ share in m- cap at a new high

Mutual funds’ share in m- cap at a new high Domestic mutual funds ( MF) now account for 4.5 per cent of India’s total market capitalisation ( m- cap), up from 2.9 per cent two years ago. The rise comes amid robust and consistent investor flows into equity schemes, rise in stock prices, and market- beating performance by fund managers. MFs’ share in domestic m- cap is at record levels and significantly higher than 2007- 08 levels, which is considered to be a boom period for the mutual fund sector. In January 2008, equity assets under management — as a percentage of overall m- cap — were just 3.48 per cent. Investments into equity schemes are mostly from retail investors. Since May 2014, after the new government took charge, inflows into equity schemes have totalled a whopping Rs. 1.75 lakh crore and it goes without saying that a large part of these investments has been invested into stocks. Nimesh Shah, managing director and CEO of India’s largest fund house ICICI Prudential Mutual Fund, says investors have made a shift away from physical assets to financial assets. “ Investors have become aware of the advantages of consistent investing, which has helped the industry. A positive investor experience will help make sure retail investors continue to take exposure to the markets through the mutual fund route, rather than direct investing.” Industry players say investors put in around Rs. 3,000 crore a month through the so- called systematic investment plan ( SIP). The flows through the SIP route had dropped to around Rs. 800 crore a month a few years ago. The number of equity folios has risen by seven million over the past two years — from 29 million to nearly 37 million now. “There has been a welcome increase in domestic MF ownership of Indian equities over the past three years. There is a clear shift in domestic appetite for financial assets over hard assets like real estate and gold. Our fiscal and monetary policies have strengthened the case for financial assets over hard assets. India’s strong macroeconomic platform and potential for higher growth have also strengthened the case for equities,” said Vetri Subramaniam, chief investment officer of Invesco Mutual Fund He added the sector’s good track record and SIPs have contributed to the growth. The increase in dominance of mutual funds will act as a good counter balance to foreign flows, say experts. Foreign institutional investors’ share of India’s m- cap, however, is significantly higher at 20 per cent. “There is still a lot of potential for mutual funds to grow. Investors are fast learning the importance and need of investment in mutual funds. The industry’s responsibility will increase as more and more retail investors look towards mutual funds for wealth creation,” said Sundeep Sikka, chief executive officer of Reliance Mutual Fund.

Take Right Steps

SIP CALCULATOR : Investment of Rs. 5,000/- per month
TENURE	3 YEARS	5 YEARS	10 YEARS	15 YEARS	20 YEARS	25 YEARS
Amount Invested	1,80,000	3,00,000	6,00,000	9,00,000	12,00,000	15,00,000
Compounded Returns @ 10%	2,10,650	3,90,412	10,32,760	20,89,621	38,28,485	66,89,452
Compounded Returns @ 15%	2,28,397	4,48,408	13,93,286	33,84,315	75,79,775	1,64,20,369

(  An investment of Rs 5000.00 per month  for  20  years  can give a  returns of Rs 38,28,455.00  even at  a moderate rate of 10 % ).

Understanding Systematic Investment Plans:

Systematic investment plans as the name suggest allows a user to build an investment portfolio with a small systematic investment at regular intervals. The investor can choose his or her preferred mode of investment as monthly, quarterly or annually and invest the funds according to his or her convenience.

 Advantages of investing using a systematic investment approach:

Investment discipline: The one basic rules of investing is to always maintain a focused and dedicated approach towards investment.  A large number of people enter the investment markets with a lot of enthusiasm but fail to maintain a monthly investment towards building a regular investment corpus. Investing in a systematic investment plan allows users to maintain a monthly investment scheme which is far easier to maintain in the long run rather than investing a lump sum amount each year. Investing in systematic investment plans must be considered by all investors who are yet to attain an investment discipline allowing them the convenience to invest a pre determined sum every month towards their future.

Rupee cost averaging:

Rupee cost averaging, also commonly known as RCA is one of the very significant reasons why investing in a systematic investment plan must be considered by almost every investor. Investing  a fixed amount of money every month enables the  purchase of more units when the price of the investment is lower. This reduces the average cost of purchasing of the financial asset over time. Considering a long term investment approach, rupee cost averaging can even out any market ups and downs in the long term, allowing the investor to gain maximum benefits ion his or her investments over time.

In simplistic terms, let us consider an investor is investing a monthly fixed amount in a mutual fund investment plan. Considering the fact that the investor invests the same amount each month irrespective of the market cycle, be it a bull phase or a bear phase, the average cost of investment is eventually maintained at a lower level allowing maximum gains in the long term.

Power of compounding:

One of the basic rules of being a successful investor is to start early. Since all investment and returns are based on the power of compounding, an investor starting out early can earn much higher returns than a one starting out late even with a higher corpus. Since  a systematic investment plan does not seek a large amount of investment and one can start investing with a low sum each month depending on their financial condition, it allows them to start investing much early in life.

Let us consider Mr. A and Mr. B and understand how the power of compounding helps the investor using a systematic approach. 

Mr. A started investing in a systematic investment plan investing a sum of Rs. 1000 when he was 30 years old. By the time Mr. A reaches 50 years of age, he would have invested Rs. 24 Lakhs if the money grew on an average rate of 7% per annum. Now let us consider Mr. B who starts out earlier than Mr. A and started investing the same amount of Rs. 1000 from the time he was 20 years old or ten years earlier than Mr. A. Mr. B's investment growing at the same rate of 7% per annum would end up as high as Rs. 36 Lakhs by the time he is 50 years old. So while both Mr. A and Mr. B invested same amount each month, the one starting out early has made a substantial gain compared to the one starting out late.

Investment convenience:

A systematic investment plan gives the investor the advantage of investing small amount of money each month without any hassles. The investor can send a onetime instruction to the bank to allow auto debit of the investment amount each month from the account, without worrying about missing out  any monthly investment.

SIPs in ELSS

One of the best tax saving instruments is the equity-linked saving schemes (ELSSs).You can claim tax benefits under section 80C of the Income Tax Act.

Create a portfolio

Create a portfolio that has large-, multi- and mid-cap funds

Make sure that you have an emergency fund in place before you start investing in equity

I am 40 years old and earn around Rs.12 lakh a year. I have about Rs.7 lakh invested in direct equities, Rs.10 lakh in a Public Provident Fund (PPF) account and a company provided health insurance plan. As of now, I do not have any investments in mutual funds. Should I continue relying on directly investing in equities to build my savings?

—Thomas John

The asset mix you are currently holding is at 59% debt and 41% equity. If we go by the thumb rule, then the asset mix at your age should just be the reverse i.e. 60% equity and 40% debt. At the same time it is prudent that you do your risk profiling. There are many websites available where you can do this for free. This exercise will let you know how much risk exposure you should be taking and how much of the investments can be in assets with higher risk. This information is critical as there may be instances when your financial needs demand higher risk exposure versus what you can actually take.

At the same time, you are building your equity exposure via direct stocks. This can be a good strategy provided you have in-depth knowledge and time to manage the stocks. However, if you are not able to offer both, then mutual funds is a preferred option as these offer multiple benefits such as a team of experts managing your portfolio, low cost, diversification, transparency along with convenience.

Apart from these, being a salaried employee, you can plan to start monthly investments via systematic investment plans (SIPs) in mutual funds, wherein a monthly fixed amount (such as a recurring deposit) gets debited from your bank account on a fixed day and you are allotted units based on the price of that day’s investment.

This approach helps accumulate wealth over a long term, and along with bringing in discipline and helping you reach your financial goals, it carries the benefits of rupee cost averaging, and power of compounding, which help in the long run.

You can also consider equity funds as you already have debt exposure through PPF.

However, what is lacking in your portfolio is liquidity.

Make sure that you have an emergency fund in place before you start investing in equity because equity investments are meant to be held for a long term, and PPF is not a liquid asset. Within equity, you could consider 3-4 funds and create a portfolio with a combination of large-cap, multi-cap and mid-cap funds.

For your insurance needs, while you do have a health insurance, it is provided by the company and will last only as long as you serve there. It is recommended that you have your own health insurance policy as well. You could start with a lower cover, and increase it gradually. Also, consider taking a life cover; a term plan is a good option. This is recommended if you have dependants.

The Great Land Tragedy of Kerala

THE Kuttanad taluk  was once called the granary of Kerala. In the 1920s, shallow portions  covering about 50,000 acres, were reclaimed and used for paddy cultivation helped by the Travancore Prince. Later,
while implementing the Land Reforms Act in 1973, the government seized thousands of acres of backwater paddy fields above the ceiling limit .The government started paddy cultivation directly using the bureaucracy controlled by a stalwart IAS officer, to avoid corruption. But it resulted in heavy losses to the State exchequer and these were increasing year after year. Accepting failure, the government abandoned that programme and assigned one acre each to thousands of landless peasants. Those small-scale owners in the backwaters spread beyond the eye-view were bereft of any help for cultivation. The government, not ready to surrender before adverse realities, set up the Co-operative Societies of farmers, inspired by the Agricultural Communes in the Soviet Union, and provided them enough finance on soft conditions. But the Societies collapsed due to the corruption and partisanship of the Directors. For the last three decades backwater paddy fields in 50,000 acres have been left uncultivated thus severely affecting the State’s food production. Hence after enforcement of the Land Reforms Act, paddy fields of more than one million hectares have been left uncultivated due to fragmentation and decentralisation of ownership. Such a situation has stalled the mechanisation and industrialisation of agriculture.

Similarly dryland above the ceiling limit was also seized by the government from the owners by giving them just a pittance. It was assigned to the landless families, so-called, in fragments. They sold it within a few years, squandered the money and became landless once more. Now they have formed suicide squads and encroached on government land influenced by the old Naxalites, new Maoists, other terrorist groups and anarchic writers. Their aim is to get the government land once again, sell it once more and prepare for the next encroachment.

 Now the Tata company is holding 1,16,892.6 acres of plantation including the hill-top tourist centre in the Munnar town. Another company, Harrison, has 79,659.2 acres of plantations. Both companies have encroached on 50,000 acres of government owned land, as alleged by the media. In addition to the Tatas and Harrison, other minor companies, firms, black money operators and millionaires are possessing thousands of acres as plantations on encroached forest land.
In this context ,we  may look into the matter of how the Kerala Land Reforms Act destroyed food production and promoted the capitalists,how the old Naxalites, new Maoists, other terrorist groups and anarchic writers resurrected.One must study the difference between destruction and revolution.

The fate of Kerala model

The much-touted Kerala model of development has its own drawbacks as it takes into account only limited variables. Kerala, according to the National Crime Records Bureau, has a higher crime rate than the national average.

While the state has succeeded in attaining good and equitable coverage of education, it is lagging behind when it comes to higher education.

In terms of health too, there is a paradox.While the state ranks high in terms of health coverage, it also ranks high in the number of suicides and attempted suicides. This must be considered against the backdrop of the World Health Organisation’s definition that health is a state of complete physical, mental and social well-being

Another contradiction is in the area of gender justice.Despite a highly favourable sex ratio, the crime rate against women in Kerala is also higher than the national average.

Factors like ‘ecocide’ (destruction of ecological resources) and ‘democide’ (killing of civilians through organised groups/ quotation mafia) also prevent Kerala from calling itself a ‘developed’ state.

While there has been upward mobility for all sections of society, we also find that income disparity between the highest and lowest strata has increased, with the highest group earning at least 11 times than the lowest.

Political confusions

The domination of political fronts  in the state is not based on any developmental politics, but on an emphasis to keep certain vote banks with them. When there are vote banks based on sectarian appeal, one does not have to relay much on performance. Kerala should have been one of the most prosperous states in the country considering the assets it has, the economic model it developed was  not a developmental model. Kerala is among the few states to face revenue deficit though not geographically disadvantaged. Kerala should make use of the manpower resources in the state itself rather than exporting it. The state should concentrate on development projects in areas like coastline based projects, tourism and plantation.

Kerala leads only in social index but lacks in economic prosperity. 

In comparison with Tamil Nadu

Tamilnadu is one of the most industrialized states in India. Almost 50% of the population live in urban areas. Tamilnadu has Chennai (IT and Automobile), Coimbatore (makes most of motors in India), Tiruppur (makes most of the textile in India), Sivakasi (South asian hub for fireworks), Salem (Steel), Hosur (most of the production houses of Bangalore are stationed here for tax reasons), Neyveli (coal), Madurai (Madura coats, TVS, Fenner), Trichy (Bhel) are the examples. There are places like Ooty, Kodaikanal, Tirunelveli, Kanyakumari, Tuticorin, with religious and historical tourism spots. All these places make money and local jobs. Also Tamilnadu has the highest density of educational institutions in India (more than 200 engineering colleges - representing the 30% of engineering institutions of the country) that means employable population is always high and are sought for in other places. 

Tamilnadu has a very unique work culture which is well respected all over the world, that is why even colonial powers like the British lured Tamils in all their colonies for agriculture and other jobs. 

Tamilnadu has stood in either second or third place after Maharastra and Haryana or Punjab in economic prosperity .

Tamilnadu had stood at 2nd place after Kerala in social index . Tamilnadu leads in sanitation and hospital infrastructure to Kerala. Kerala is known to have more high school pass outs  and  high literacy rate. But Tamilnadu makes more doctors and engineers. Highest density of auditors in India is in Chennai. 

Tamil Nadu’s capacity for innovation and creative thinking in matters of public administration is an  example for the entire country.

Tamilnadu's development is a collective development. If there are other states economically properous like Tamilnadu , they have very bad social index .  

"Employable graduates" are not equal to just "graduates" : Tamilnadu makes more employable graduates in India. This is  why you are seeing more Tamils in jobs in other states . Indian companies know this and have confirmed this view in many places.

A time to have different view:

Anything and everything proposed by the ruling party , no matter how good it is, is strongly opposed by the other parties. And, next time when the opposing parties win the election, they will propose the same things under a different name which will again be strongly opposed by other parties. Any issues in the state will directly lead to 'Chief Minister should resign' protests.
Kerala is a struggling economy, almost entirely dependent on tourism and remittances sent back by two million of its people who live and work abroad, mostly in the Middle East.

Joblessness is rife due to the lack of a robust manufacturing base .

More people here are taking their lives more  than anywhere else in India. Alcoholism is a dire social problem - the state has India's highest per capita alcohol consumption.

Kerala model

The much-touted Kerala model of development has its own drawbacks as it takes into account only limited variables. Kerala, according to the National Crime Records Bureau, has a higher crime rate than the national average.

While the state has succeeded in attaining good and equitable coverage of education, it is lagging behind when it comes to higher education.

In terms of health too, there is a paradox.While the state ranks high in terms of health coverage, it also ranks high in the number of suicides and attempted suicides. This must be considered against the backdrop of the World Health Organisation’s definition that health is a state of complete physical, mental and social well-being

Another contradiction is in the area of gender justice. ’Despite a highly favourable sex ratio, the crime rate against women in Kerala is also higher than the national average.

Factors like ‘ecocide’ (destruction of ecological resources) and ‘democide’ (killing of civilians through organised groups/ quotation mafia) also prevent Kerala from calling itself a ‘developed’ state.

’While there has been upward mobility for all sections of society, we also find that income disparity between the highest and lowest strata has increased, with the highest group earning at least 11 times than the lowest.

Political confusions

The domination of political fronts  in the state is not based on any developmental politics, but on an emphasis to keep certain vote banks with them. When there are vote banks based on sectarian appeal, one do not have to relay much on performance. Kerala should have been one of the most prosperous states in the country going by the assets it has, the economic model developed is  not a developmental model. Kerala and West Bengal were the only two major states to face revenue deficit though not geographically disadvantaged. Kerala should make use of the manpower resources in the state itself rather than exporting it. The state should concentrate on development projects in areas like coastline based projects, tourism and plantation.

Kerala leads only in social index but lacks in economic prosperity. Kerala do not have jobs, people move to temporary jobs on contract jobs there because there is always labour shortage due to lack of local labours in Kerala - only because the cost of local labours are higher.

In comparison with Tamil Nadu

Tamilnadu is one of the most industrialized states in India. Almost 50% of the populations live in urban area. Tamilnadu have Chennai (IT and Automobile), Coimbatore (makes most of motors in India), Tiruppur (makes most of the textile in India), Sivakasi (South asian hub for fireworks), Salem (Steel), Hosur (most of the production offices of Bangalore is stationed here for tax reasons), Neyveli (coal), Madurai (Madura coast, TVS, Fenner), Trichy (Bhel), Ooty, Kodaikanal, Tirunelveli, Kanyakumar, Tuticorin, and so many different places with religious and historical tourism places. And all these places makes money and local jobs. Also Tamilnadu has the highest density of educational institution in India (more than 200 engineering colleges - representing the 30% of engineering institutions of the country) that means employable population is always high and are sought for in other places. 

Tamilnadu has a very unique work culture which is well respected all over the world, that is why even colonial powers like British lured Tamils in all their colonies for agriculture and other jobs. 

Tamilnadu has stood in either second or third place after Maharastra and Haryana or Punjab in economic prosperity .

Tamilnadu had stood at 2nd place after Kerala in social index . Tamilnadu leads in sanitation and hospital infrastructure to Kerala. Kerala is known to have high school pass outs to have high literacy rate but Tamilnadu makes more doctors and engineers. Highest density of auditors in India is in Chennai. 

Some experts from Noble laureate - Amartiya Sens praise for Tamilnadu - “Tamil Nadu’s capacity for innovation and creative thinking in matters of public administration is an important example for the entire country,” say Prof. Sen and Jean Dreze in their book.

Tamilnadus development is collective development. If you see the other states economically properous like Tamilnadu has very bad social index and same with Kerala which performs very bad in economic aspects. 

Employable graduates is not equal to graduates : Tamilnadu makes more employable graduates in India. This is  why you are seeing more Tamils in jobs in other states and this trend will continue. Indian companies know this and have confirmed this view in many places.

A time to have different view:

Anything and everything proposed by the ruling party no matter how good it is, will be strongly opposed by the other parties. And, next time when the opposing parties win the election, they will propose the same things under a different name which will again be strongly opposed by other parties. Any issues in the state will directly lead to 'Chief Minister should resign' protests.

Recently, Kerala government was  planning to start their own airways named Air Kerala. How it  aims to run in profit, at a time when the entire Indian aviation sector is struggling to survive. How a government whose bus service is running in huge loss will be able to manage an airliner.

Kerala is a struggling economy, almost entirely dependent on tourism and remittances sent back by two million of its people who live and work abroad, mostly in the Gulf.

Joblessness is rife due to the lack of a robust manufacturing base .

More people here are taking their lives than anywhere else in India. Alcoholism is a dire social problem - the state has India's highest per capita alcohol consumption.